— Written By Nicholas Brown (3 days ago)

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Estoy de Acuerdo / Eu concordo / I agree

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As the ‘ag tax’ professor at NC State, I have made it my mission since the devastation caused by Hurricane Helene and Hurricane Debby to provide as much tax information as possible to help those individuals who are hurting not get hurt any worse than they have to be when tax deadlines arrive this year. In the course of this endeavor, I have encountered many of the same questions.

This article will hopefully answer these questions and provide a resource to farmers, business owners, and tax preparers for those individuals as deadlines get closer. In order to convey the information in the most effective means possible, this article is structured as a ‘Frequently Asked Questions’ page, meaning that not all of this article will apply to you, but keep scrolling because there is a good chance that several questions may pertain to your farm, business, or individual tax returns. This article covers everything from deadline extensions to livestock sales and from Christmas tree losses to property tax issues.

For readers who would prefer to listen to presentations, I have done two recently which were both recorded. The first presentation, done in cooperation with Laura Lauffer and Jennifer Badger at EmPOWERing Mountain Food Systems (EMFS) and Daphne Carson at A-B Tech Community College, was done on February 17, 2025. The second presentation, done in cooperation with Kendra Phipps and the Watauga County Cattleman’s Association was scheduled and re-scheduled a couple different times due to snow storms, and was eventually held on a Zoom call on February 20, 2025.

While this resource should hopefully answer most of your questions, feel free to email me other questions (nwbrown2@ncsu.edu) – which I may turn into separate articles. Of course, as I have done with this article, all names and other personal identifiers will be removed and only the relevant tax information (e.g., type of farm/business, type of losses suffered) will be provided in order to assist the most people possible. In order to stay up to date when those articles come out, please subscribe by email to Farm Law & Tax.

Without further ado, let’s get into it.

General Tax Questions (disaster relief money, deadlines, property taxes)

I received money from FEMA (or other relevant government agency – federal, state, or local). Will that money be reported as income on my taxes?

The answer to this is generally ‘no’ (i.e., you won’t have to report this money as income).

I did a previous article on this that I’ll recommend here, but broadly speaking, your payment from a government agency will be deemed to be a ‘qualified disaster assistance payment,’ which is not included in your gross income. This rule stands regardless of when that payment was received (i.e., a payment received in 2024 will be treated the same as a payment received in 2025).

I received money from a GoFundMe (or other charitable fundraising). Will that money be reported as income on my taxes?

Like the prior question, the answer to this is also generally no (i.e., you won’t be taxed on this money as income).

The IRS generally refers to this type of activity as ‘crowdfunding‘ in their informational resources. As long as the money was donated to the individual or business out of generosity (and not, e.g., in exchange for goods or services or promise thereof), money received from crowdfunding will be viewed by the IRS as a gift.

Now, technically, the crowdfunding website might be required to issue a Form 1099-K to the recipient of the funds (which is done when the gift is over $18,000 for 2024), but that doesn’t necessarily indicate a payment of taxes is required – just that you need to include the Form 1099-K on your tax return for the year in which you received the funds. And if the payment of taxes is required, the donor – the person who made the gift – would be responsible for paying the taxes. Still, the donor has a lifetime federal exemption of $13.61 million, so it’s unlikely.

How do I know if I’m a cash basis filer or an accrual basis filer? Why is that important?

This is one of those situations where ‘if you have to ask, you probably fall into one of the categories over the other.’  Here, if you have to ask, you are likely a cash basis filer. This general statement is true because 98% of farmers are cash basis filers, and it’s the default under IRS rules to be a cash basis filer (i.e., you, as the taxpayer, would have to make an election with the IRS to become an accrual basis filer).

Essentially, the difference is this. Imagine two farmers. Farmer A is a cash basis filer. Farmer B is an accrual basis farmer. Both Farmer A and Farmer B pay $10,000 for ten years of fertilizer on January 1, 2021. Also on January 1, 2021, Farmer A and Farmer B receive $5,000 in income for sweet potatoes off a parcel of property that entitles the buyer to that parcel’s harvest for the next five years.

As a cash basis filer, Farmer A recognizes $5,000 in income and $10,000 in expenses, all in 2021. This result occurs because, as a cash basis filer, Farmer A recognizes income when it enters his possession (i.e., when the check is in his hand). Farmer A also recognizes expenses when he pays them. Now, from 2022 to 2025, Farmer A will not recognize any income from the sweet potatoes because he’s already counted that money in his 2021 taxes. For the same reason, Farmer A will not recognize any expenses from 2022 to 2030 from the fertilizer purchase because he paid for it in 2021.

As an accrual basis filer, Farmer B will distribute the income and expenses across the years in which the income is considered earned and the years in which in the expenses are considered incurred. Thus, Farmer B will recognize an income of $1,000 (1/5 of the five years of prepayment) in 2021 from the sweet potato sale, another $1,000 in income in 2022, and so forth until the final $1,000 in income recognition in 2025. Likewise, Farmer B will recognize $1,000 in fertilizer expense in 2021, another $1,000 in fertilizer expense in 2022, and so forth until the final $1,000 in fertilizer expense in 2030. It’s worth noting that the math may change for Farmer B if, for example, Farmer B uses more fertilizer in 2023 than in other years or if Farmer B produces more sweet potatoes in 2022 than in other years – but the principle remains: Revenue is recognized when it’s earned, and expenses are recognized when incurred (for the accrual basis filer).

As you might imagine, being an accrual basis filer requires a certain level of recordkeeping that most farmers and small businesses (of any type, not just agribusinesses) simply cannot afford in their overhead, which is why most farmers and small business owners are cash basis filers (and why the IRS makes it a default selection).

Now, why is it important to be cash basis or accrual basis? A few of the rules discussed later in this article will limit eligibility to farmers/agribusiness owners who are cash basis filers. When that is the case for a particular rule, it will be noted.

When are the tax deadlines, anyways? Is there anything else that I should know about these deadlines?

I’ll plug another article here. Essentially, Hurricane Helene struck in late September and the IRS moved all the deadlines for those within the federal disaster area from October 15, 2024 (which was the next date for any deadlines after Helene hit) to May 1, 2025 to May 1, 2025.

Of note, if you filed for an extension on your 2023 taxes that made your 2023 tax return due on October 15, 2024, your 2023 tax return is now due on May 1, 2025. This is worth noting because your 2024 tax return is now also due on May 1, 2025. In other words, both your 2023 and 2024 tax returns could potentially be due on May 1, 2025 – which obviously is a factor worth considering in the coming months.

There were other deadlines that occurred from October 15, 2024 to May 1, 2025 mentioned in that previously referenced article.

What about my state income tax bill for North Carolina? Any extensions there?

Technically, no extensions on your 2024 state tax bill in North Carolina, but there’s a catch. Officially, there was no extension of state tax deadlines; however, the North Carolina Department of Revenue (DOR) will not levy penalties for tax-related payments that were otherwise due between September 25, 2024, and May 1, 2025. The NC DOR has a method to correct any issues that may have arisen if late notices were erroneously sent out to taxpayers.

I have a house (barn, high tunnel, etc.) that was destroyed or significantly damaged as a result of Hurricane Helene, yet my property tax bill for 2024 – which was due on January 6, 2025 – is taxing me for the property’s valuation with the destroyed/damaged structure still being on it. Why am I being taxed for something that no longer exists or is significantly lower in value?

A lot of controversy has arisen over this particular issue. The tensions are understandable when, for most folks, this is their first tax deadline after Hurricane Helene struck and it’s coming from their local government using a valuation on property that has lost a significant amount of value. In short, I have seen the complaints and recognize why people are upset.

Timing and state law are both very crucial to understand here for this situation to make sense. Property tax assessments (i.e., the valuation of your individual property) occur annually on January 1 of the tax year. Thus, 2024 property valuations are made for the property’s value on January 1 – whatever your property was worth on January 1, 2024 (before Hurricane Helene) will be reflected in your 2024 property tax bill. The amount of property taxes owed will not be due until around the year of the tax year, which, for 2024 property taxes, was January 6, 2025. As such, when January 6, 2025 came around, property owners in western North Carolina – many of whom had experienced significant losses in property value from Hurricane Helene – faced a deadline to pay a property tax bill that factored in the value of their property before Hurricane Helene struck.

It is important to note that county governments had no control over this – property taxes are regulated to a comprehensive degree by North Carolina state law. Not only could county governments not adjust the deadline, the county governments could not adjust the property tax rates or allow for delinquency periods (as had been done with state income taxes). As noted in my presentations, some county governments have taken steps to help property owners for their 2025 property tax bills, but there’s not much that can be done by the local government for the 2024 property tax bills, at least, not by the county governments.

Tennessee was facing a similar issue, and their governor recently signed a bill that refunded property tax bills to the property owners who could show property damage from Hurricane Helene.

Do I have to file a Schedule F in order to take advantage of most of these tax rules for farmers?

Generally speaking, yes. For most of the tax rules mentioned below this, you have to have a business purpose for the property (i.e., a reasonable and legitimate expectation of profit). Some rules apply to personal property (so, personal residences, personal vehicles, etc.), but generally, if you’re in the business of farming, you’ll be filing a Schedule F.

It is worth noting that a taxpayer can file a Schedule F regardless of any corporate entities that they choose to use. In other words, a taxpayer can file a Schedule F if the taxpayer files as a sole proprietorship, an LLC, an S Corp, C Corp, or even if the taxpayer is operating revocable trust.

Involuntary Conversion Questions

Note to the reader: For the next few questions, any time that you see a word that is underlined, take note of that word specifically because there will likely be a subsequent question that changes the underlined word but does not change the wording of the rest of the question. This underlining shows a difference in how the rule works when the underlined portion of the question changes. As a final note, with casualty losses (business or personal), the loss is taken on a property-by-property basis so aggregation of losses across multiple properties is not permitted.

I have business use property (NOTE: This could be a barn, a tractor, a multipurpose building, culvert, tools, fuel tanks, high-tunnels, etc. – I’ve received this question with various forms of property, but the rules generally apply the same way for business use property) that was significantly damaged, but not destroyed. Can I deduct this loss from my taxes?

For business use property that was significantly damaged, but not destroyed, the rules work like this:

The taxpayer can deduct the ‘casualty loss,’ which, under these circumstances, is calculated using the following formula:

• The lesser of (1) the property’s adjusted basis or (2) its decline in fair market value (i.e., its fair market value before the disaster minus the fair market value after the disaster; note that fair market value issues are worthy of a future standalone article that will be linked here once written)
  • MINUS
• Expected insurance/reimbursement

For tax preparers, Treasury Regulation § 1.1657(b)(1) is the applicable citation.

To apply this to an example, let’s say that Farmer A has a barn that was significantly damaged from flooding and winds during Hurricane Helene. Farmer A had depreciated the barn using straight-line depreciation, so the barn’s adjusted basis was $100,000. The barn’s fair market value, before Helene, was $200,000. The fair market value of the building after Helene was $150,000. Farmer A receives $40,000 in insurance proceeds from the barn’s damage. How do we do the math here for Farmer A?

Take $50,000 (i.e., the lesser of adjusted basis or the decline in value), subtract $40,000 (insurance proceeds), and Farmer A can recognize a $10,000 casualty loss.

To report this on Farmer A’s 2024 tax return, Farmer A lists the basis, insurance payment, and fair market values (both before and after Helene) on IRS Form 4684, Section B. Farmer A reports the loss on Form 4797, if such a form is otherwise required to be filed. If there is no applicable requirement for a Form 4797, Farmer A lists the loss on his Form 1040, Schedule 1 with a note that says “Form 4684.”

Note also that Farmer A’s basis in the barn is decreased both by insurance proceeds received and the casualty loss recognized. As such, the barn’s basis is now $50,000 (calculated by taking the $100,000 pre-Helene basis and subtracting the $40,000 from insurance and $10,000 in casualty loss).

Any amount spent on the restoration of the barn, including with insurance proceeds, is going to increase the basis. Thus, if Farmer A uses 100% of the insurance proceeds to restore the barn, the barn’s basis is increased to $90,000 (calculated by taking the $50,000 post-Helene basis and adding the $40,000 from insurance proceeds spent on restoration).

I have business use property (NOTE: This could be a barn, a tractor, a multipurpose building, culvert, fuel tanks, tools, high-tunnels, etc. – I’ve received this question with various forms of property, but the rules generally apply the same way for business use property) that was destroyed. Can I deduct this loss from my taxes?

For business use property that was destroyed, the rules work like this:

The taxpayer can deduct the ‘casualty loss,’ which, under these circumstances, is calculated using the following formula:

• The property’s adjusted basis
  • MINUS
• Any salvage value AND expected insurance proceeds

For tax preparers, Treasury Regulation § 1.1657(b)(1)(ii) is the applicable citation.

Let’s go back to Farmer A, except let’s use his tractor, which is completely inoperable after Hurricane Helene. Still, the tractor had an adjusted basis of $100,000 (which had been using straight-line depreciation). Farmer A now receives $80,000 in insurance proceeds for the tractor. And the tractor, while completely destroyed, can be sold for scrap for $5,000 (which is its salvage value). As a result, Farmer A takes the adjusted basis of $100,000, subtracts the $80,000 in insurance proceeds, subtracts the $5,000 in salvage value, and gets a casualty loss of $15,000.

On his 2024 tax return, Farmer A will list the adjusted basis and fair market value before and after Helene on Form 4684, Section B. The loss is reported on Form 4797 as an ordinary loss.

I have business use property (NOTE: This could be a barn, a multipurpose building, fuel tanks, culvert, tools, high-tunnels, etc. – I’ve received this question with various forms of property, but the rules generally apply the same way for business use property) that was destroyed. Can I deduct the demolition costs from my taxes?

Yes, and the demolition cost along with the basis of any destroyed structures would be added to the basis of the land.

Of note, if a casualty loss damages or destroys a structure which is then demolished, the basis of the structure must first be reduced by the allowable casualty loss before the “loss sustained on account of” the demolition is determined.

Tax preparers can reference IRS Notice 90-21 for this issue.

I have personal use property (NOTE: This could be a barn, a tractor, a multipurpose building, culvert, tools, fuel tanks, high-tunnels, etc. – I’ve received this question with various forms of property, but the rules generally apply the same way for personal use property) that was significantly damaged, but not destroyed. Can I deduct this loss from my taxes?

Thanks to the keen observation made by an individual in WNC Communities, I was made aware of the Federal Disaster Tax Relief Act of 2023 (H.R. 5863), which was signed by Pres. Biden on Dec. 12, 2024, but has not been mentioned in my presentations to this date (Feb. 24, 2025) due to my lack of knowledge on it. As such, my presentation materials on personal use casualty losses are now outdated, so this is the most recent information.

The answer, now, is yes, though the rules for a personal casualty loss deduction are different than business casualty losses (except the non-aggregation rule discussed above – each personal use property loss has to be calculated separately). For a personal casualty loss, the taxpayer will receive an above-the-line deduction (i.e., you can itemize and still receive this deduction) for the loss in personal use property that is located in a federally declared disaster area. The deduction will be calculated using the following formula, again for each property casualty loss (non-aggregated):

• Determine the loss in adjusted basis
• Subtract insurance proceeds
• Subtract $500

Due to the Federal Disaster Tax Relief Act of 2023, taxpayers no longer have to subtract 10% of their AGI from the deduction. As such, let’s say that Farmer A had a detached garage where he stored his personal vehicles. The garage had an adjusted basis of $50,000. The garage was damaged in the storm, the loss was estimated to be $7,000. Insurance paid out $2,000 in repairs. As such, Farmer A would have a personal casualty loss deduction worth $4,500 ($7,00 less $2,000 in insurance and $500 from the automatic deduction).

I have business use property (NOTE: This could be a barn, a multipurpose building, fuel tanks, tools, culvert, high-tunnels, etc. – I’ve received this question with various forms of property, but the rules generally apply the same way for business use property) that was damaged OR destroyed (distinction is irrelevant here). Can I deduct the loss from my taxes if I used Section 179 to fully depreciate the property in prior years?

Farmers in this situation are likely facing a ‘casualty gain’ from any insurance proceeds that they receive as a result of damage or destruction of a property that had a significantly reduced basis through Section 179. A casualty gain is calculated as the amount received as insurance proceeds minus the adjusted basis in the property at the time of the casualty. Even if the decrease in the property’s fair market value is smaller than the adjusted basis of the property, the adjusted basis is still used to calculate the gain.

Back to Farmer A’s damaged barn, except in 2022, Farmer A deducted the full amount of the barn’s basis on his 2022 tax return so, in 2024, the barn adjusted basis of $0. Farmer A is still getting $40,000 in insurance proceeds from the barn’s damage, and the barn’s post-Helene fair market value is $150,000.

Applying the math, Farmer A has a casualty gain of $40,000 ($40,000 in insurance proceeds minus the $0 in adjusted basis).

To report this casualty gain, Farmer A lists the basis, the insurance payment, and the gain on Form 4684. Depending on the property type, other tax forms may need to be utilized.

This income is taxed as ordinary income (not subject to self-employment tax), if Farmer A chooses to recognize the gain – which depends on decisions made with respect to involuntary conversions (discussed in the next question).

I have business use property (NOTE: This could be a barn, a multipurpose building, fuel tanks, tools, culverts, high-tunnels, etc. – I’ve received this question with various forms of property, but the rules generally apply the same way for business use property) that was destroyed. I used Section 179 in a previous year to reduce the adjusted basis down to zero, and am worried about the casualty gain on this year’s taxes. Is there anything I can do to help this issue?

Yes, a casualty gain can be deferred to next year’s taxes (i.e., 2025 tax return) if the insurance proceeds are used to reinvest in the replacement property.

To qualify, the taxpayer must purchase replacement property that is similar or related in service to the destroyed property. The property, if located within the federally declared disaster area, can be replaced within four years. If located outside the federally declared disaster area, the property must be replaced within two years. A personal residence in a federally declared disaster area can be replaced within four years. The purpose behind the extra time is to allow the taxpayer to have time to recover and make wise decisions both behind the election and the details of the subsequent purchase (i.e., to avoid bad actors from price gouging so people have to buy at higher prices to take advantage of the rule).

Tax preparers can reference I.R.C. § 1033(a)(2)(A) and Treasury Regulation § 1.1033(a)-2(c)(2). Form 4684 must be used to report involuntary conversions due to a casualty. Statements must be attached to tax returns in both the year of the casualty and the year when the taxpayer acquires the replacement property.

Here, the basis from the destroyed/damaged property can be carried over to the basis for the replacement property and any gain recognized will be recognized on the future sale of the replacement property.

Due to damaged sustained from Hurricane Helene, I sold more livestock than normal (i.e., fields were damaged so I had to sell livestock that would’ve otherwise occupied those fields). I am afraid of my 2024 tax bill being higher than normal due to this income. Are there any tax rules that can help me?

Yes, there are actually two rules that you need to make an election between (assuming you are eligible for both). The two rules are Section 451(g) Deferral of Income and Section 1033(e) Involuntary Conversion.

Section 451(g) Deferral of Income

To qualify for Section 451(g), a farmer must meet the following conditions:

• Principal business must be farming (i.e., more than 1/2 of income must come from farming)
• Use cash accounting method
• Must be able to show that animals sold in year of disaster (2024) would have been sold in following year (2025) if disaster had not occurred (IRS uses a 3-year average, see the example below for how that works)
• Weather condition that caused the area to be under the federal disaster area caused the sale of the livestock (this requirement is not hard to meet)

Let’s go back to Farmer A. Assume Farmer A sold 49 head of cattle in 2021, 51 head of cattle in 2022, and 50 head of cattle in 2023 – so a 3-year average of 50 head of cattle sold. And this is Farmer A’s principal business – he can have other jobs, but over 1/2 of his income comes from farming. Farmer A is a cash basis filer.

Moreover, Farmer A sold 80 head of cattle in 2024 due to Hurricane Helene damaging some pastures and barns. That’s 30 more head of cattle sold in 2024 than his prior 3-year average of sales. Thanks to Section 451(g), Farmer A can defer the income from the sale of those 30 extra head of cattle to 2025.

Section 1033(e) Involuntary of Conversion

To qualify for Section 1033(e), a farmer must meet the following conditions:

• Must have draft, breeding, or dairy livestock
• Must replace draft, breeding, or dairy livestock within a 2-year window (or 4-year window if in a federally declared disaster area)
• Replacement animals must be used for same purpose (e.g., dairy animals must be replaced with dairy animals)
• Have a statement attached to their 2024 tax return that states the following:
  • Evidence of weather-related condition (pictures, before and after the disaster, are always great)
  • Computation of amount of gain realized (sale price of excess animals sold)
  • Number and kind of livestock sold
  • Number and kind of livestock that would’ve been sold under normal conditions (again, use the 3-year average)

The benefit of Section 1033(e) is that a farmer can replace the livestock with the basis from his sold livestock, thereby deferring a potential gain.

Going back to Farmer A, Farmer A (who was located in a federally declared disaster area) decides instead to use Section 1033(e) and replaces the extra 30 cattle sold in 2027 after waiting three of the four years on the waiting period (and using the extra time to, e.g., build new barns and repair the landscape). Farmer A had an adjusted basis in the 2024 excess cattle sales of $60,000 for the 30 head of cattle. But Farmer A notices that cattle prices have increased by 2027, and $60,000 will only purchase him 15 cattle. So does Farmer A need to purchase 15 head of cattle for $60,000 (replace the value) or 30 head of cattle for $120,000 (replace the number of sold head)?

Farmer A needs to purchase 15 cattle for $60,000 – the IRS only cares about replacing the value, not necessarily the number of head sold. Note, though, that the IRS does require farmers to purchase the same type of livestock (so, dairy for dairy, breeding for breeding, and draft for draft).

I received crop insurance proceeds in 2024 as a result of Hurricane Helene. Can I defer this income to 2025?

Yes, if you meet the following requirements:

• Cash method filer
• Receive crop insurance proceeds in year of the damage (i.e., received crop insurance money in 2024 – note that if you received the proceeds in 2025, it would be taxable in 2025 regardless of this rule)
• Can show under normal business practice that you would have included more than 50% of the income from the damaged crops in any tax year following the year the damage occurred

Note that this rule applies regardless of the source of crop insurance (e.g., private crop insurance or public crop insurance program).

I am a Christmas tree farmer that sustained major tree damage during Hurricane Helene. How do I calculate my casualty loss?

Generally, the IRS applies timber casualty loss rules to Christmas tree farming, so the casualty loss will be calculated as such:

• Casualty loss will be the lesser of:
  • Decrease in fair market value of the ‘block’ (i.e., damaged area) due to the disaster
    • OR
  • Adjusted timber basis of the block (i.e., cost of seedling plus capitalized expenses such as ground preparation, planting labor, and planting supplies – this is more commonly used)
• Deduct insurance proceeds

I have fields that sustained major damage due to Hurricane Helene (NOTE: This question encompasses a wide array of damages from losses to culverts to losses of fences and from downed trees to repairing trees). How do I do a casualty loss calculation based on these damages?

Per the IRS, the cost of restoring landscaping to its original condition after a disaster like Hurricane Helene may indicate a loss in fair market value. As such, a loss may be measured by what the taxpayer later spends on:

• Removing damaged or destroyed trees or vegetation, minus any salvage value (e.g., cost of firewood sold)
• Pruning and other measures taken to preserve damaged trees and shrubs
• Replanting necessary to restore the property to its approximate value before the casualty

These questions keep referencing basis, but I’ve never done a basis calculation on these types of property. How do I calculate my adjusted basis?

A retroactive basis determination will resolve this issue, though it is strongly recommended to have a competent and experienced tax professional (CPA, EA, etc.) conduct this process because it will require some research based on prices of different aspects at the time (e.g., fertilizer cost during a period 5 years ago).

Based on this information, I have concluded that I will have more loss deductions in 2024 than income in 2024. How will that work?

Depending on your circumstances, you will likely have a net operating loss (NOL) that you can carry forward to future years as a tax deduction. You may also be able to deduct a 2024 casualty loss deduction against your 2023 taxes, which might be useful if you were one of the individuals or businesses with a 2023 tax return deadline of May 1, 2025.

Other Resources

Where can I find other resources by NC State?

By checking in with us at Farm Law & Tax and/or subscribing to our emails. Also, check with your local extension agent to see if we’re doing a talk near you soon.

Where can I find resources by other entities, that provide more national-level information?

Rural Tax is a group of ag tax professors, and they keep very good articles and presentations on their websites about most of these rules and more.